Prescription Audits:

When the DEA or AG Come Knocking Anticipating and Responding to Heightened Investigations of Prescribing and Dispensing Practices

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THURSDAY, NOVEMBER 21, 2013

Presenting a live 90-minute webinar with interactive Q&A

Lee H. Rosebush, Counsel, BakerHostetler, Washington, D.C.

Harry Nelson, Co-Founder & Managing Partner, Fenton Nelson, Los Angeles

Benjamin N. Gluck, Principal, Bird Marella Boxer Wolpert Nessim Drooks & Lincenberg, Los Angeles

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Prescription Audits: When the

DEA or AG Come Knocking

November 21,2013

Lee H. Rosebush

lrosebush@bakerlaw.com

202-861-1567

5

Current Topics and Trends

• Examples of DEA Actions

• Individual Prescribers

• Pharmacies

• Wholesalers

• Constructive Delivery

6

Examples of DEA Actions

7

• Samples of Administrative Actions

Actions Against Individual Prescribers

• Recordkeeping

• Medical Needs

Actions Against Pharmacies

• Valid Prescriptions

• Conducting a Proper Inventory

• Largest Controlled Substance Fine

Actions Against Wholesalers

• Compliance Program – Monitoring

• State Actions

8

Actions Against Individual Prescribers

Recordkeeping

• Sigrid Sanchez, M.D.

• Application for registration denied due to violations of

recordkeeping, physical security, employee oversight provisions

of CSA/regulations by pharmacy respondent.

• Responsible for prior actions of the original owner/operator who ceased

employment and passed on responsibilities to the respondent.

• The revocation was upheld despite arguments that the violations

underlying the revocation may not have been initially

perpetrated by the respondent (i.e. poor recordkeeping merely

continued from prior operations as opposed to abrogation of

adequate recordkeeping upon transfer).

9

Actions Against Individual Prescribers

Medical Need

• Clair L. Pettinger, M.D.

• Registration revoked after DEA determined that the practitioner

had issued 9 prescriptions for controlled substances absent

legitimate medical need to undercover DEA agents.

• The revocation was upheld despite:

• The practitioner’s introduction of evidence that the undercover agents may

have deliberately induced diversionary prescription through symptomology

deception;

• Evidence that the practitioner had undertaken significant efforts to improve

identification of legitimate versus non-legitimate medical need.

10

Actions Against Pharmacies

Valid Prescriptions

• S&S Pharmacy (d/b/a Platinum Pharmacy &

Compounding)

• Registration revoked and all controlled substances seized after

informants made cash purchases of Schedule II narcotics

(oxycodone) from pharmacy employees based on fraudulent

prescriptions.

• The informants provided fraudulent prescriptions for oxycodone

to the pharmacy.

11

Actions Against Pharmacies

Conducting a Proper Inventory

• Top RX Pharmacy • Registration revoked for multiple CSA/regulatory violations,

including:

- Failure to conduct initial inventory

- Providing false information to controlled substance distributors

- Failure to maintain accurate and complete records and/or account for

controlled substances

- Diluting promethazine syrup before dispensing

- Dispensing controlled substances under circumstances in which it knew or

should have known that the drugs were being diverted from non-medical,

illegitimate purposes.

• The pharmacy failed to conduct initial inventory or maintain

accurate records of controlled substances received, which led to

further investigations of the pharmacy’s dispensing practices.

12

Actions Against Pharmacies

Valid Prescriptions • The DEA alleged that between 2008 and 2011 two large retail

pharmacies in Florida had purchased quantities of oxycodone that

considerably surpassed the amount ordinarily purchased by retail

pharmacies.

- Further, the DEA alleged that the pharmacies had dispensed

controlled substances to customers under circumstances indicating

that the drugs were illegally diverted and had failed to appropriately

monitor dispensing habits.

- The pharmacies argued that the high volume of dispensing was due to

the fact that the two locations, one of which was open 24 hours a day,

were busy stores, and that both locations had made significant efforts

to implement robust anti-diversion procedures.

• The pharmacies implemented several programs, such as monitoring

prescriber habits, to help ensure controlled substances were being

used properly.

13

Actions Against Pharmacies

Largest Controlled Substance Fine • On June 11, 2013, a large retail pharmacy chain agreed to pay $80

million in civil penalties to the DEA—the largest ever settlement

involving allegations based on the Controlled Substances Act.

• The settlement resolves allegations that the pharmacy chain had an

“unprecedented” number of record-keeping and dispensing

violations under the CSA. Specifically, the DEA alleged that the

pharmacy chain negligently allowed controlled substances, such as

oxycodone, to be diverted for abuse and black market sale.

14

Actions Against Pharmacies • Other recent allegations made by DEA against a large

pharmacy chain: - A chain pharmacy knowingly filled prescriptions for controlled

substances that were not issued for a legitimate medical purpose

pursuant to a valid physician-patient relationship in Kentucky and in

New York.

- A pharmacy chain did not properly notify the DEA of significant theft

and loss of controlled substances, which allowed the diversion of

controlled substances to continue and undermining DEA’s ability to

investigate such thefts and/or losses.

- At pharmacies in California, Pennsylvania and Maryland, a pharmacy

chain either failed to maintain or failed to furnish to the DEA upon

request records that are required to be kept under the CSA.

15

Actions Against Pharmacies • Other recent allegations made by DEA against a large

pharmacy chain: - A pharmacy chain failed to properly execute DEA forms used to

ensure that the amount of Schedule II drugs ordered by it were

actually received.

- The DEA also conducted accountability audits of controlled

substances at a pharmacy chain to determine whether the chain could

properly account for Schedule II and III controlled substances

purchased and dispensed. The results of the audits revealed

significant shortages or surpluses of the most highly abused drugs,

including oxycodone and hydrocodone products, reflecting a pattern of

non-compliance with the requirements of the CSA and federal

regulations that led to the diversion of controlled substances.

16

Actions Involving Wholesalers

Compliance Program - Monitoring

• On May 15, 2012, a large wholesale distributor agreed to a two-year

suspension of its license to ship controlled substances from its

Florida center.

• The DEA suspended the wholesaler’s registration based on

allegations that it knew or should have known that 4 of its

customers, including two pharmacies in Sanford, Florida, were

inappropriately filling prescriptions for oxycodone. Specifically, the

DEA alleged that the wholesaler:

- Failed to maintain effective controls against the diversion of controlled

substances, including failing to conduct meaningful due diligence to

ensure that controlled substances were not diverted; and

- Failed to detect and report suspicious orders of controlled substances

as required by the CSA, on or before May 14, 2012.

17

Actions Involving Wholesalers

State Actions

• The West Virginia Attorney General filed a lawsuit against 14 drug

distributors alleging that the entities have benefited from the state’s

prescription drug abuse problem and seeking damages and

attempting to cut off the so-called “pill mill” process.

• The lawsuit alleges that the distributors provide a bridge between

drug manufacturers and the nation's vast network of retail

pharmacies. These entities have been targeted before for allegedly

not doing enough to recognize and stop the flow of addictive pain

pills.

18

Constructive Delivery

19

Constructive Delivery

• Congressional Intervention

- Will we finally get to see new legislation?

• DEA policy is that the delivery must still be to the patient…even for

injectable medication.

20

Chicago

Cincinnati

Cleveland

Columbus

Costa Mesa

Denver

Houston

Los Angeles

New York

Orlando

Washington, DC

www.bakerlaw.com

These materials have been prepared by Baker & Hostetler LLP for informational purposes only and are not legal advice. The information is not intended to create, and receipt of it does not constitute, a lawyer-client relationship.

Readers should not act upon this information without seeking professional counsel. You should consult a lawyer for individual advice regarding your own situation. ©2013 Baker & Hostetler LLP. All Rights Reserved.

Harry Nelson 310.444.5244

hnelson@fentonnelson.com

Prescription Audits

Trends – Physician Dispensation

• 44 generally permissive states (6 restrictive states: MT, MA, NY, TX, UT, WY)

• Most active dispensation states: CA, FL, HI, IL, MD • Limitations on dispensing Schedule II and III controlleds

(FL 2011 “Pill Mill Law”) • Workers compensation physician dispensation

– Awareness of disproportionate share of drug costs – Reform of state laws to limit mark-ups (CA 2007, IL 2012 )

• Popular practice areas for dispensation – urgent care – pain, weight loss, integrative medicine

23

Who’subject to audit?

• CSA Definition of “Practitioner” – Physician, dentist, veterinarian, podiatrist, mid-level

practitioner (e.g. PA, NP), scientific investigator, pharmacy, hospital, or other person licensed, registered, or otherwise permitted, by U.S. or the jurisdiction in which the practitioner practices or performs research, to distribute, dispense, conduct research with respect to, administer, or use in teaching or chemical analysis, a controlled substance in the course of professional practice or research.

– Every person or entity that handles controlled substances must be registered with DEA or be exempt by regulation from registration.

24

Registration • Each separate location at which drugs are stored, prescribed or

dispensed must be registered separately.

• Exceptions: – Registered at one location and merely prescribing (without

administration/dispensing/storage ) at other location

– Agents /employees of practitioner (other than mid-level practitioners if acting in normal course of business or employment unless otherwise required by state law)

– Hospital/institutional agents/employees covered by the institutional registration

• Best practice: separate registrations of all practitioners in dispensing offices

• Shipments to registered locations only. – No transporting of medications

– Challenges in mobile practice

25

Registration challenges in Mobile Practice

• Weak spot in regulatory oversight –mobile practices prohibited, leading to practitioner confusion, inconsistent enforcement

• Separate addresses for storage and administration? – Registration of home address- may be prohibited

under state law

• No provision for lawful transportation

• Practices where location is not suitable for registration

26

Audit Preparedness-Prescribing

• Prescription for controlled substances not "effective" unless "issued for a legitimate medical purpose by an individual practitioner acting in the usual course of his professional practice." 21 CFR § 1306.04(a).

• Record requirements: – No general requirement to keep records of controlled substances – Exceptions:

• Prescribing in the course of maintenance or detoxification treatment (21 CFR §1304.03 )

• Electronic prescribing digitally signed record, internal audit trail and any auditable event (21 CFR § 1311.150)

• Institutional practitioners must retain a record of identity proofing and issuance of the two-factor authentication credential, where applicable, as required by 21 CFR §1311.110 (21 CFR §1304.06)

27

Audit Preparedness-Prescribing

• Prescriptions must be issued for a legitimate medical purpose by a practitioner acting in the usual and lawful course of professional practice

• (1) All of the information required under §1304.22(c) and part 1306 of this chapter. • (2) The digitally signed record of the prescription as received as required by §1311.210 of this

chapter.

• (d) A registrant and application service provider must retain a copy of any security incident report filed with the Administration pursuant to §§1311.150 and 1311.215 of this chapter.

• (e) An electronic prescription or pharmacy application provider must retain third party audit or certification reports as required by §1311.300 of this chapter.

• (f) An application provider must retain a copy of any notification to the Administration regarding an adverse audit or certification report filed with the Administration on problems identified by the third-party audit or certification as required by §1311.300 of this chapter.

• 21 CFR §1304.06)

28

Audit preparedness Dispensing Overview

• Records must be readily retrievable and kept available for inspection. – Produced in a reasonable time – Identifiably distinguished from other records

• Security requirements – Physical controls – Inventory monitoring – Workforce screening/oversight

• Recordkeeping requirements – Biennial Inventory

– Dispensation logs – Invoice/Shipment records – Disposal records

29

Audit Preparedness-Security • Security- Procedures and Controls to Guard

against Theft/Diversion • Locked cabinets-securely locked, substantially constructed

storage

• Employee screening

• Reports of lost or stolen medications

• Adequacy of “effective controls and procedures” assessed relative to location, type of building, type and qty of drugs, type of cabinet/safe/vault, monitoring (alarm), public access, police access

-21 CFR § 1301.71 et seq.

30

Recordkeeping – Biennial inventory

• New inventory every 2 yrs from initial inventory • Exact count on Schedule II substances • Estimated count for Schedule III, IV or V (unless container is >1000 tablets

or capsules. (21 C.F.R. §1304.11.) • Inventory must be maintained in written form and must include the: (i)

name of each substance; (ii) finished form; (iii) n umber of units; and (iv) number of commercial containers on hand at the time of the inventory.

– Dispensation logs • dates of dispensation • patient name, gender, address, • all details of the medication, quantity prescribed or dispensed must be

maintained – Purchasing/Delivery records – Additional requirements for treatment (maintenance, detox,narcotic

treatment) programs -21 CFR Part 1304

31

Biennial Inventory (21 CFR § 1304.11) Clinic Name: MD Name: Address:

Med. License #: _________ DEA #:______________

Initial Inventory Date: Last Inventory Date:

Date: Name of Substance:

Finished Form Number of Units or Volume of Each Finished Form in Each Container:

Number of Commercial Containers on Hand at Time of Inventory

Total Units

9.15.13 Hydrocodone APAP

100-mg tablet 100 tablets per bottle

4 100-tablet bottles

9.15.13 Lorazepam 3-ml vial 1 6 3-ml. vials

•Schedule II inventory – separate from other schedules •Failure to maintain inventory – prima facie evidence of violation

32

Dispensation Log (21 CFR § 1304.22) Clinic Name: MD Name: Address:

MD License #: DEA#:

Medication: Carry Over:

Date Pt First Name

Pt. Last Name

Ordering Provider

Drug Dose Qty Finished Form

Lot# Given By

MD Signature

Count

Signature

Pt Address/Phone M/F NDC# ICD-9 Refill #

Carryover Total

Page

•Additional requirements for GHB dispensation

33

DEA Form 106: Report of Theft or Loss of Controlled Substances

• Discrepancies must be investigated promptly to account for variances in controlled substance inventories.

• If theft or loss is determined to be the cause of the variance, Form 106 report must be submitted at time of discovery to DEA (and in some instances to police)

34

Disposal of Controlled Substances • Request assistance from local SAIC via DEA Form 41

(surrender) – SAIC “shall authorize and instruct” on disposal via:

• transfer to another authorized person (Reverse Distributor) • delivery to DEA agent or office • destruction in presence of DEA • “[b]y such other means as the [SAIC] may determine to assure that

the substance does not become available to unauthorized persons” (including regular process with records and periodic reporting)

• Pending new regulations to implement the Secure and Responsible Drug Disposal Act of 2010 (“Take Back” collection events)-published Dec. 21, 2012

-21 CFR § 1307.21 / Fed. Reg. 2012-30699

35

DEA Form 222 • Triplicate order form for DEA Schedule II

controlled substances-issued by local DEA office

• Also needed for transfer/disposal (e.g. Reverse Distributors)

• Also maintain all invoices, shipping records, and packing slips

36

Recommended Policies and procedures • Personnel

– Employee screening/background checks – Exclude any person convicted of drug-related crimes or

who has had DEA registration denied, revoked, surrendered

– Biological fluid testing?

• Security Safeguards – Secured prescription access – Writing actual amounts not just numbers on Rx – No advance signed prescriptions – Report suspicion activity to DEA

• Records/Training / Enforcement / Self-auditing

37

Practical Recommendations

– Keep DEA Binder (or electronic equivalent) up to date for “ready retrievability”-in addition to required records, also keep licenses, registrations, certificates

– Rotate responsibilities among more than one person

– Keep tight control on keys, access

– Calendar next biennial inventory date

– Periodically self-test: Reconcile the inventory starting point, subsequent additional purchases, dispensation log, and hard count -- with any discrepancy accounted for. (21 C.F.R. § 21.)

38

Risk Issues

Growing attention on prescription drug abuse- opioid dependence/addiction, recreational abuse, overmedication as public health risks.

Single biggest enforcement focus: preventing diversion (i.e. diversion of prescription drugs from lawful medication purpose for illicit use, sale, and abuse – “Bar[ring] doctors from peddling to patients who crave

the drugs for those prohibited uses."

ARCOS system tracks flow of controlleds from manufacture to distribution to dispensing/retail level – (hospitals, pharmacies, practitioners, mid-level practitioners).

Gonzales v. Oregon, 546 U.S. 243, 274 (2006) (citing United States v. Moore, 423 U.S. 122, 135 (1975)).

39

Risky Prescribing

• Large quantities relative to other practitioners (note: avoid ordering for multiple practitioners under one registration)

• No physical exam

• Questionable prescriptions

• Questionable circumstances

40

Most Common Diversion Risks

– Drug-seeking/doctor-shopping patients

– Illegal distribution (MD’s who sell or permit associates to abuse)

– Sloppy/Falsified Recordkeeping

– Self-abuse

– Employee pilferage from inventory

– Burglary (Break-ins)

– In Transit Loss (Hijacking)

– Forged / fraudulent / altered prescriptions

41

Recurrent Story: The “Hidden” Addict

• Physician spouse or employee

• Develops underlying health issue, e.g. injury, illness or procedure

• Legitimate prescription leads to dependency on narcotic opioids

• Hints of dependency are missed or attributed to problems (e.g. fatigue due to workload)

• Access to distributor account enables spouse/employee to bypass prescribing safeguards

• Order quantities increase, attracting DEA audit

• DEA uncovers major discrepancy in inventory

42

Presented by:

Benjamin N. Gluck

310.201.2100

bng@birdmarella.com

PRESCRIPTION AUDITS: AUDIT PROCESS

44

Audit Process

• Shorthand rule – the inspectors have

broad authority to ask for documents

and ask questions

• The “scope” of the audit will be up to

the inspectors

• Employees should recognize this and

try to be as cooperative as possible

45

Audit Process

• DEA

• State Authorities

• Typically from the Pharmacy Board (or similar)

• Or from State Attorney General’s Office

Audit Process

• California:

–All stock of any dangerous drug or dangerous

device . . . shall be at all times during business

hours, open to inspection by authorized

officers of the law.

• Business & Professions Code § 4080

46

Audit Process

• California: –All records of manufacture and of sale,

acquisition, or disposition of dangerous drugs

or dangerous devices shall be at all times

during business hours open to inspection by

authorized officers of the law, and shall be

preserved for at least three years from the

date of making.

–Business & Professions Code § 4081(a)

47

Audit Process

• California:

–A current inventory shall be kept by every . . .

Pharmacy . . . who maintains a stock of

dangerous drugs or dangerous devices.

• Business & Professions Code § 4081(a).

48

Audit Process

• California

–When called upon by an inspector, the owner

or manager of any entity licensed by the board

. . . shall furnish the inspector with the names

of the owner or owners, manager or

managers, and employees together with a

brief statement of the capacity in which these

persons are employed on the premises.

• Business & Professions Code § 4082

49

Audit Process

• Federal – DEA

–Audit process

–Two year record requirement

–DEA Forms • 222 (sched. II drugs)

• 106 (significant loss of controlled substance)

–Logbook – pseudoephedrine • Combat Methamphetamine Epidemic Act of 2005

50

Audit Process

• DEA may ask for:

–Registration certificate

–Powers of attorney

–Unused DEA 222’s; stored properly?

–Executed DEA 222’s

• Readily retrievable?

• Any missing?

–Supplier invoices

–Distribution records

51

Audit Process

• DEA – Continued

–Controlled substance prescriptions

–Refill records

–Computer dispensing printouts

–Inventory records

–Substances stored properly?

52

Cause for Heartburn

• The audit can be a “conversation”

rather than a mere “inspection”

• The pharmacy is only as good as

its weakest link, i.e., its weakest

employee

53

Example

• In re Pacifica Pharmacy Corp.

–Precedential Decision No. 2013-01 (available

at Cal. Pharm. Board’s web site)

• Obviously egregious facts – pharmacist

filled thousands of opiate prescriptions for

out-of-area patients.

• License was revoked.

54

Example

• In re Pacifica Pharmacy – Lesson

–It was a holistic inspection:

• Inspectors reviewed the CURES reports before

coming

• Inspectors conducted inspections PLUS extensive

interviews

• Inspectors found some violations BUT biggest

problem was the overall impression the inspectors

obtained, i.e., that this was a pharmacy that wasn’t

properly complying with its “corresponding

responsibility” to ensure prescriptions were proper

55